Slater & Gordon Limited warns shareholders its shares are overvalued

Many investors may have forgotten that personal injury law firm Slater & Gordon Limited (ASX: SGH) still trades on the ASX after the law firm was forced into a debt-for-equity rescue plan in order to avoid insolvency.

Shareholders who clung on through the catastrophic consequences of the $1.3 billion Quindell acquisition have been all but wiped out anyway, after the restructure involved a 1-for-100 share consolidation, with the implied value of the post consolidation equity around 30 cents to $1.10 per share.

In other words the original scrip was left valued at between o.3 cents and 1.1 cents for shareholders who rode it all the way to the bottom.

As a result of the restructure the free float is limited with nearly all of the company now in the private hands of U.S. distressed debt specialists, with even Slater & Gordon itself flagging to investor that the exchange traded scrip currently changing hands at around $3.13 is not in line with KPMG’s valuation of 30c to $1.10 – still SGH’s shareholders always were of an optimistic disposition.

Slater & Gordon is also probably the only listed company in the world to warn shareholders its scrip is overvalued, with anyone wanting to take it fully private having a vested interest in a lower “share market” valuation.

On an operational basis Slater & Gordon has now sold off what it could of its UK operations, which resulted in a statutory profit after tax of $113.7 million, although for continuing operations it reported a net loss after tax of $31.9 million on revenue from continuing operations of $159.3 million.

It also has a “net asset position” of $63.3 million, with plans to right-size its Australian operations after a horror couple of years.

I suspect Slater & Gordon won’t remain listed for much longer, given the low volumes, limited free float, and disastrous track record. As such I’d definitely suggest this is a stock to avoid.

In the professional services space you’d be better off looking towards profitable money managers such as Janus Henderson Group (ASX: JHG) or even the likes of trustee business EQT Holdings Ltd (ASX: EQT).

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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